CASE STUDY
The Ministry of Economy of Cambodia is going to introduce new economic regulations in order to stimulate food processing industry inside the country.
The Ministry considers the following alternatives:
Price ceiling for imported processed food at the level below equilibrium point, that is present now inside the country;
Quotas for amounts of food imported (restrictions of imports quantity);
Increase of import taxes (tariff barriers) for food importers;
Decrease of taxes for food producers inside the country;
Draw graphs and answer the following questions for each scenario:
What will be the effects for Supply, Demand and Equilibrium in each case? For convinience draw two graphs for each situation: 1) one for food produced and consumed locally 2) for food imported from abroad and consumed locally. Final graph is an aggregate of these two. You dont need to calculate this aggregation exactly, just demonstrate thetchanges graphically.
What will be the effect for consumer surplus?
What will be the effect for producer surplus?
One more question for the third scenario ( Increase of import taxes (tariff barriers) for food importers):
What can be the additional effect for the market, if the Ministry collects more taxes as import tariffs and use these money to buy more food inside the country and give it out for free (to poor families, unemployed etc.)?
For this case study please review Chapter 6, Mankiw (Supply, Demand and Government policies).
CASE STUDY The Ministry of Economy of Cambodia is going to introduce new economic regulations in order to stimulate food processing industry inside the country. The Ministry considers the following alternatives: -Price ceiling for imported processed food at the level below equilibrium point, that is present now inside the country; :Quotas for amounts of food imported (restrictions of imports quantity); Increase of import taxes (tariff barriers) for food importers; Decrease of taxes for food producers inside the country; Draw graphs and answer the following questions for each scenario: 1.What will be the effects for Supply, Demand and Equilibrium in each case? For convinience draw two graphs for each situation: 1) one for food produced and consumed locally 2) for food imported from abroad and consumed locally. Final graph is an aggregate of these two. You dont need to calculate this aggregation exactly, just demonstrate the changes graphically. 2.What will be the effect for consumer surplus? 3.What will be the effect for producer surplus?
One more question for the third scenario ( Increase of import taxes (tariff barriers) for food importers): - What can be the additional effect for the market, if the Ministry collects more taxes as import tariffs and use these money to buy more food inside the country and give it out for free (to poor families, unemployed etc.)?
For this case study please review Chapter 6, Mankiw (Supply, Demand and Government policies).